GAO-01-458R

United States General Accounting Office

Washington, DC 20548

B-287290

February 27, 2001

The Honorable Chuck Grassley

Chairman

The Honorable Max Baucus

Ranking Member

Committee on Finance

United States Senate

The Honorable W. J. (Billy) Tauzin

Chairman

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce

House of Representatives

Subject: Department of Health and Human Services, Health Care Financing

Administration: Medicaid Program; Medicaid Managed Care

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a

major rule promulgated by the Department of Health and Human Services, Health

Care Financing Administration (HCFA), entitled “Medicaid Program; Medicaid

Managed Care” (RIN: 0938-AI70). We received the rule on February 13, 2001. It was

published in the Federal Register as a final rule with comment period on January 19,

2001. 66 Fed. Reg. 6228.

The final rule implements provisions of the Balanced Budget Act of 1997 that, among

other changes, allow states greater flexibility by permitting them to amend their state

plan to require certain categories of Medicaid beneficiaries to enroll in managed care

entities without obtaining waivers, if beneficiary choice is provided.

Enclosed is our assessment of the HCFA’s compliance with the procedural steps

required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.

Our review indicates that HCFA complied with the applicable requirements.

If you have any questions about this report, please contact James W. Vickers,

Assistant General Counsel, at (202) 512-8210. The official responsible for GAO
Page 2 GAO-01-458R

evaluation work relating to the subject matter of the rule is Bill Scanlon, Managing

Director, Health Care. Mr. Scanlon can be reached at (202) 512-7114.

signed

Kathleen E. Wannisky

Managing Associate General Counsel

Enclosure

cc: Ms. Catherine P. Beck

Deputy Executive Secretary to

 the Department

Department of Health and Human Services
GAO-01-458R

ENCLOSURE

ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE

ISSUED BY THE

DEPARTMENT OF HEALTH AND HUMAN SERVICES,

HEALTH CARE FINANCING ADMINISTRATION

ENTITLED

"MEDICAID PROGRAM; MEDICAID MANAGED CARE"

(RIN: 0938-AI70)

(i) Cost-benefit analysis

HCFA prepared a cost-benefit analysis of the final rule and notes that it is extremely

difficult to accurately quantify the overall impact of the rule because of the variation

among states and the regulated entities regarding their current regulatory and

contractual requirements.

The cost of the 6-month guaranteed eligibility option is quantified for 6 years. The

total estimated federal and state costs are $70 million for Fiscal Year (FY) 2000,

$100 million for FY 2001, $140 million for FY 2002, $205 million for FY 2003,

$290 million for FY 2004, and $405 million for FY 2005.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,

607, and 609

HCFA prepared a Final Regulatory Flexibility Analysis concerning the impact of the

final rule on small entities. HCFA notes that most of the entities impacted by the

final rule do not qualify as small.

In discussing the alternatives considered to reduce the impact, HCFA states that it is

not imposing any additional requirements on primary care case managers beyond

those specified in the Balanced Budget Act of 1997. Also, HCFA has not applied all

managed care organization requirements to all prepaid health plans.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform

Act of 1995, 2 U.S.C. §§ 1532-1535

As defined in title II, the final rule does not contain either an intergovernmental or

private sector mandate of more than $100 million in any one year.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

The final rule was issued using the notice and comment procedures found at 5 U.S.C.

553. On September 29, 1998, HCFA published a Notice of Proposed Rulemaking in
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the Federal Register. 63 Fed. Reg. 52022. HCFA discusses the 305 comments it

received in response to the Notice in the preamble to the final rule.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

According to the report forwarded to our Office by HCFA, the final rule contains

information collections that are subject to review and approval by the Office of

Management and Budget under the Paperwork Reduction Act.

Statutory authorization for the rule

The final rule is promulgated under the authority of sections 1102, 1871, 1905, 1932,

1932(b), 1932(c), and 1932(d) of the Social Security Act.

Executive Order No. 12866

The final rule was reviewed by the Office of Management and Budget and found to

be an “economically significant” regulatory action under the order.

Executive Order No. 13132 (Federalism)

HCFA has determined that the final rule does not have federalism implications under

the order because it will not significantly affect states’ rights, roles, and

responsibilities. The final rule gives states more flexibility because it removes

certain requirements that they viewed as impediments to the growth of managed

care. The preamble to the final rule also contains a discussion of HCFA’s

consultation with the states in developing the final rule.